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2013.08.27 - British Virgin Islands: Requirements for keeping financial / accounting documentation

 

On 12th November 2012, the Parliament of the British Virgin Islands adopted amendments to the Virgin Islands Mutual Legal Assistance (Tax Matters) Act 2003 that oblige British Virgin Islands companies to keep certain business and accounting documentation.

Considering the many questions received from clients in respect of the order and the scope of documents to be kept, we outline below the details of this legislation.

  1. Virgin Islands Mutual Legal Assistance (Tax Matters) Act 2003 was adopted on 15th January 2004 to support the agreement on exchange of information relating to taxes between the USA and the UK (the British Virgin Islands being part of the latter).

    Section 5 of the above law enables the British Virgin Islands competent authority to request financial and other information from any person that holds, in their opinion, the required information, whether located in the British Virgin Islands or not.

    Section 5(6) of the law provides for penalties for failure to comply with the requirements for providing the requested information. The penalties are a fine of up to USD 5,000 or imprisonment for up to two years.

    Section 3(3) of the law stipulates that, notwithstanding the existing agreement between the USA and the UK, this law is also applicable to other international agreements on exchange of information relating to taxes entered into by the British Virgin Islands.
  2. On 12th November 2012, in accordance with the OECD recommendations, a supplement to the above law was adopted, namely a new section 5A was added after article 5, which provided for the following requirements:
    • A. to keep at the office of the British Virgin Islands registered agent or at another place within or outside the British Virgin Islands, the records and underlying documentation, and
    • B. to retain the records and underlying documentation for a period of at least 5 years from the date:
      • I. completion of the transaction to which the records and underlying documentation relate; or
      • II. the company terminates the business relationship to which the records and underlying documentation relate.
    • C. Where the above documentation is kept at a place other than at the office of the registered agent, the company shall provide the registered agent with a written record of the address at which the records and underlying documentation are kept. Where the place at which the records and underlying documentation changes, the company shall provide the registered agent with the new location within 14 days.

    Section 5А(4) of the law stipulates that the records and underlying documentation shall be in such form and of such scope that:
    • A. are sufficient to show and explain the company’s business and transactions, and
    • B. will, at any time, enable the financial position of the company to be determined with reasonable accuracy.

International Overseas Services comments:

The adopted legislative supplement, namely the Virgin Islands Mutual Legal Assistance (Tax Matters) (Amendment) Act 2012, does not implement any new requirements for keeping business/accounting documentation. All these requirements were already incorporated in the British Virgin Islands corporate law (namely the British Virgin Islands Business Companies Act 2004). In particular, note Section 98 of the Act.

However, whilst so far this standard had been regulated only by local laws of the British Virgin Islands, after the Virgin Islands Mutual Legal Assistance (Tax Matters) Act 2003 was amended, this requirement has become applicable to international agreements concluded by the British Virgin Islands.

Therefore, all owners of British Virgin Island companies must keep business and accounting documentation in order to comply with the current legislation.

Neither the British Virgin Islands Business Company Act 2004 nor the Virgin Islands Mutual Legal Assistance (Tax Matters) (Amendment) Act 2012 requires that financial statements should be prepared or filed in the British Virgin Islands, and stipulate only for the keeping of original business/accounting documentation. However, there is no limitation on the voluntary preparation of financial statements and usually the availability of financial statements of a company is appreciated by the business partners of the company, servicing banks and other interested parties.

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